Credit ratings and scores can seem very complicated and often rather confusing; if you understand the basics you should hopefully be able to manage yours as effectively as possible.

So what is a credit rating?

A credit rating is a simple number which many lenders use to determine whether or not they will give a loan or credit to someone. Credit ratings are used to determine applications for various things including loans from banks or building societies, a mortgage for buying a home, a credit card/store card or even hire purchase of goods.

Your credit rating is simply how financially attractive you are to a lender.

Why do I need a good credit rating?

You may not be aware that you have a credit rating until you try to access credit, say for the purchase of your first car.

Credit scoring can dictate what financial products you will be able to access and how good the ones you actually get are.

For example if you apply for a loan to buy a car, the loan may be advertised with a ‘Typical APR’, this interest rate may be very low, but if you have a poor credit rating you may not be offered such a good rate. You may still be accepted but offered a different product.

If rejected for credit it does not mean that another lender will do the same as scoring systems differ.

What affects credit rating?

An individual’s credit rating is impacted by a number of factors, some of which are controllable, others of which are not. A credit rating has to be built up. If you have never received credit then you will have no history and subsequently no rating or score.

Whether you have a less than perfect credit rating or no credit rating at all, there are certain things you can do to improve your rating and therefore eligibility to access credit.

What causes a weak credit rating?

Your name isn’t on the electoral roll.

You have legal actions against you (for owing someone/organisation money).